Figure: Slope
Look at the figure Slope. In the graph, the slope of the line between points A and B is:
A) +8.
B) “8.
C) “2.
D) +2.
Holding everything else constant, the government’s budget balance during an expansion
will:
A) move toward a larger surplus or reduced deficit.
B) remain the same.
C) move toward a reduced deficit or a smaller surplus.
D) be equal to 100.
The concept that the whole is greater than the sum of its parts best characterizes:
A) microeconomics.
B) supply and demand.
C) macroeconomics.
D) business forecasting.
Figure: Inflationary and Recessionary Gaps
Look at the figure Inflationary and Recessionary Gaps. If the economy is in short-run
equilibrium at Y1 in panel (a), to return to potential output at YP policy makers should
use:
A) contractionary policy.
B) expansionary policy.
C) policies to shift the SRAS to the left.
D) policies to shift the LRAS to the left.
Figure: The Supply of DVD Rentals
Look at the figure The Supply of DVD Rentals. A decrease in the price of DVD rentals
would result in a change illustrated by the move from:
A) to o in panel A.
B) to q in panel B.
C) to t in panel C.
D) u to v in panel D.
A person who has no job but is looking for one is:
A) unemployed.
B) a discouraged worker.
C) part of the labor force.
D) unemployed and part of the labor force.
The value of all accumulated savings of a household is called:
A) wealth.
B) income.
C) debt.
D) wages.
Figure: The Money Supply and Aggregate Demand
Look at the figure The Money Supply and Aggregate Demand. Panel (b) illustrates what
happens when the Federal Reserve decides to _____ the money supply and _____
interest rates.
A) decrease; lower
B) increase; raise
C) increase; lower
D) decrease; raise
Figure: Consumption and Real GDP
Look at the figure Consumption and Real GDP. If real GDP is $8 trillion, consumption
is _____ trillion and savings is _____ trillion.
A) $4; $4
B) $5; $3
C) $6; $2
D) $7; $1
With a floating exchange rate:
A) monetary policy is ineffective.
B) monetary policy is not independent.
C) a central bank can use an independent monetary policy.
D) an independent fiscal policy cannot be used.
If the actual output lies below potential output, then an appropriate fiscal policy would
be to _____, which will shift the _____ curve to the _____.
A) increase government purchases; AD; left
B) increase transfer payments; AS; right
C) increase tax rates; AD; right
D) increase government purchases; AD; right
Figure: AD”ASModel II
Look at the figure AD”AS Model II. When firms decrease their investment spending, in
the short run the _____ curve will shift to the _____.
A) LRAS; left
B) LRAS; right
C) AD; right
D) AD; left
Figure: Demand for DVDs
Look at the figure Demand for DVDs. A decrease in the rental price of DVD would
result in a change illustrated by the move from:
A) f to g in panel A.
B) h to i in panel B.
C) j to k in panel C.
D) l to m in panel D.
Which of the following transactions is included in the nation’s gross domestic product?
A) A college student buys a used textbook from his roommate.
B) A construction company purchases lumber to build a new house.
C) A college student buys a pizza and has it delivered to her dorm room.
D) A group of college students volunteer to rake leaves at an assisted living facility for
senior citizens.
Linking savers and investors is an important aspect of:
A) a well-functioning financial system.
B) government.
C) the public sector.
D) consumers.
If the economy is at equilibrium below potential output, there is a(n) _____ gap, and
_____ fiscal policy is appropriate.
A) recessionary; expansionary
B) inflationary; expansionary
C) recessionary; contractionary
D) inflationary; contractionary
The marginal propensity to consume is the increase in consumer spending when
disposable income increases by $1.
A) True
B) False
Scenario: Money Creation
The reserve requirement is 20%. Leroy receives $1,000 as a graduation present and
deposits the money in his checking account. The bank does NOT want to hold excess
reserves.
Look at the scenario Money Creation. How much of the $1,000 deposit can the bank
lend out?
A) $1,000
B) $200
C) $800
D) $0
If an economy is efficient:
A) all goods are produced at their maximum quantity.
B) all opportunities to make people better off without making other people worse off
have been taken.
C) more resources have been used to produce specific consumer goods than producer
goods.
D) prices are the lowest they can possibly be.
When a bank borrows from the Federal Reserve, it pays the:
A) required reserve ratio.
B) discount rate.
C) federal funds rate.
D) prime rate.
If the target exchange rate of a fixed currency is below the equilibrium exchange rate, to
reach the target rate, the government should limit the ability of its citizens to buy
foreign currencies.
A) True
B) False
Which of the following represents the aggregate consumption function?
A) C= 450 + 0.7YD
B) C= 150 + 0.9YD
C) C= 250 + 0.8YD
D) C= 450 + 0.8YD
If the marginal propensity to consume is 0.1, then the tax multiplier is:
A) exactly 0.1.
B) more than 10.
C) less than 10.
D) exactly 10.
An inflationary gap gradually:
A) increases short-run aggregate supply.
B) decreases short-run aggregate supply.
C) increases aggregate demand.
D) decreases aggregate demand.
Figure: Production Possibility Frontier
Look at the figure Production Possibilities Frontier. This production possibility frontier
is:
A) bowed out because of increasing opportunity costs.
B) bowed in because of increasing opportunity costs.
C) bowed in because of constant cost of cars and computers.
D) linear because of constant costs.
Some countries have exchange rate policies that lie somewhere between fixed and
floating exchange rates, such as rates that are managed by the government to avoid
wide swings.
A) True
B) False
An inflation rate of 5% will increase the purchasing power of $1 to $1.10.
A) True
B) False
According to the liquidity preference model, a _____ in the money supply shifts the
money supply curve to the _____ and increases the equilibrium interest rate.
A) decrease; right
B) increase; left
C) decrease; left
D) increase; right
In the financial crisis of 2008, which of the following firms failed?
A) Bear Stearns, an investment bank
B) AIG, an insurance company
C) Lehman Brothers, an investment bank
D) Bank of America, a commercial bank
Long-Term Capital Management was a(n):
A) investment bank.
B) hedge fund.
C) government agency that the Federal Reserve used to hold deposits of its member
banks.
D) mortgage company.